SanDisk stock falls as Wyckoff theory flags a risky phase

SanDisk stock continued its strong retreat as investors continued selling memory shares. SNDK dropped to $1,204 in the premarket, reaching its lowest level since May 1. It has slumped by 45% from its all-time high, and the Wyckoff Theory suggests that it has more downside to go.

SanDisk stock technicals point to a retreat

SNDK stock price has been in a strong freefall in the past few weeks, moving from a record high of $2,355 on June 23 to $1,204 today. 

One way of explaining the stock’s performance is the Wyckoff Theory, which highlights the four stages that assets go through. The daily chart below shows that SanDisk’s stock remained in a narrow range for months after going public through a spinoff from Western Digital. 

This consolidation was part of the accumulation was part of the accumulation phase of the Wyckoff Theory. It is characterized by horizontal movement as smart money investors buy. 

The next stage is known as the markup and is characterized by a parabolic move where an asset surges amid rising demand. This is what has been happening in the past few months as the stock moved from nowhere to becoming the best performer in Wall Street.

There are now signs that the stock has moved to the distribution and markdown phases of the Wyckoff Theory. These two stages are characterized by intense selling by investors as they book profits. 

Therefore, the stock has more downside to go, potentially to the 61.8% Fibonacci Retracement level of $920, which is about 27% below the current level. This forecast is in line with our previous SNDK stock forecast.

SNDK stock price chart | Source: TradingView

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Why SNDK stock is in a freefall

There are a few reasons why SanDisk shares are in a freefall. First, the decline aligns with the ongoing selling in the sector. Most stocks in the memory segment have all plunged, with the viral DRAM ETF falling by over 40% from its highest point this year. 

Second, investors are concerned about the circular funding model in the industry, with top companies like Nvidia and AMD investing in companies that will then become its customers. It is in talks of offering a backstop for OpenAI’s large data center in Ohio.

Most importantly, there are signs that the industry will become highly competitive, especially if the US allows the purchasing of Chinese memory products. Apple has pushed aggressively for that, arguing that doing so will help the US cut inflation.

Further, there are concerns that the industry will go through the boom and bust cycles that have characterized its performance in the past few years. A good example of this is what happened in 2023, when Western Digital’s revenue plunged to $6 billion from the previous $18 billion. SanDisk was part of Western Digital’s business back then.

SanDisk has worked to prevent this from happening by inking long-term deals with companies like Meta Platforms. These deals have put a floor and a ceiling of its memory products. 

Meanwhile, Susquehanna’s Mehdi Hosseini, a top analyst, has recently lowered his target from $3,250 to $3,050. On the other hand, some analysts believe that it has more upside, potentially as the earnings linger. Wells Fargo analysts see it rising to $1,620, while Evercore and Wedbush have targets of $3,100 and $2,000.